Said a senior official at Ministry of Finance, VAT threshold for service sector has been halved to Rs 1 million, whereas threshold for goods traders has been kept intact at Rs 2 million. What this means is, service sector firms and also the firms dealing with both services and goods will now need to register with and pay VAT compulsorily if their transactions stood at or crossed over Rs 1 million.
“The decision will mainly bring in education consultancies and also the project and research consultancies into the VAT net,” said Shanta Bahadur Shrestha, director general of Inland Revenue Department.
The government has estimated that the change will generate additional Rs 238.10 million in VAT from contract and consultancy firms alone. This is about 20 percent of what the sector is contributing to VAT.
Also, it believes the change will help it generate additional Rs 111.40 million from hospitality industry and Rs 572.90 million from other service sectors.
“Apart from direct raise in revenue contribution, this will also help to plug leakage of VAT from the service sector as a whole,” Shrestha told myrepublica.com.
Officials attributed the decision for lowering threshold for service sector players to the recent revelation of IRD that consultancies and related service providers were contributing substantial amount to income tax, but owing to higher threshold, a large number of them were excluded from the VAT net.
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